With the impact of the coronavirus taking a toll on oil demand—and the economy in general, Citigroup has slashed its oil price forecasts for three of the quarters this year and doesn’t rule out Brent Crude sliding to as low as $47 a barrel.
Brent oil price yesterday, rose to $55.07 at about 12pm GMT, while Nigeria’s Bonny Light stood at $55.35.
Oil prices are trading below the Federal Government’s benchmark for the 2020 budget, thus posing a threat to the 2020 budget, which was signed by the President Muhammadu Buhari in December, on the assumption of oil production of 2.18 million barrels per day with an oil price benchmark of $57 per barrel.
Citi slashed its forecasts for commodity prices across the board, with crude oil getting the steepest downgrade, the investment bank said in a note, as carried by Bloomberg.
Besides, the OPEC+ group of producers are said to be considering deepening the cuts by another 500,000 bpd, due to depressed oil demand amid the virus outbreak, OPEC and industry sources told Reuters on Monday.
Indeed, there is also growing speculation that OPEC may move up the meeting scheduled for March 5-6 to February.
OPEC and its allies are now considering moving the meeting to February 14 and 15, three weeks earlier than initially planned, an OPEC source told Reuters today.
Since the start of the virus outbreak last month, more than 360 people have died in mainland China so far, while oil prices have dropped by around 15 percent in two weeks.
Early on Monday, oil prices were also depressed, weighed down by continued fears that the travel restrictions and the slowdown in China’s economy will have taken a toll on oil demand not only in China, but also in wider Asia.
Despite last week’s assurances from OPEC’s leader and largest producer, Saudi Arabia, that OPEC+ has “the capability and flexibility needed to respond to any developments,” and despite the United Arab Emirates (UAE) chiming in to downplay what it called a “market over-reaction,” OPEC is now facing a tough dilemma how to proceed with its price-fixing policies, considering that the market is so bearish on demand that it is totally ignoring a huge loss of supply from Libya.
OPEC is inclined to extend the ongoing production cuts at least through June and could discuss deeper cuts if need be, OPEC sources told Reuters last week, as oil prices continued to slide on fears that the coronavirus outbreak will impact oil demand.
Citigroup now sees Brent Crude averaging $54 a barrel in Q1, down by a massive $15 from the previous forecast of $69. The forecast for WTI Crude prices was slashed to $50 a barrel this quarter, also down by $15 from a previous estimate of $65 per barrel.
The bank also cut its estimates for the following two quarters this year, expecting the impact of the coronavirus outbreak to be longer and to linger across the global oil market until the fourth quarter.
Citi sees Q2 Brent Crude prices at $50, down from a previous forecast of $68 a barrel. Third-quarter Brent Crude prices are now expected at $53, down from $63 a barrel. For Q4, Citigroup revised up its forecast to $58 from $57 a barrel.
“With this in mind the market will keep a close eye on OPEC this week for signs of price support through additional measures to curb supply,” Ole Hansen, Head of Commodity Strategy at Saxo Bank, said on Monday.